The Role of Investment Banks in M&A Deals

5 min read
investment bansk M&A

Most large mergers and acquisitions are conducted with the help of investment banks. The biggest investment bank and M&A advisor worldwide, Goldman Sachs, alone in 2022, managed M&A deals worth more than one billion US dollars

Investment banking specialists possess the technical skills company owners need to execute transactions successfully and at the fairest price. 

Continue reading to learn more about the investment bank’s role in M&A transactions and the company’s corporate development.

What is investment banking?

Investment banking is a particular branch of banking that focuses primarily on providing advisory services for companies during complex financial transactions and capital raising.

An investment bank helps its clients with trading, sales, research, financial modeling, due diligence, M&A financing, negotiating, asset management, raising capital, and IPOs. Companies need an investment banker and their deep knowledge of investment trends to perform industry analysis, choose the most favorable type of deal (for example, private equity), and assist with executing transactions such as M&A.  

Investment bankers advise companies where owners want to sell the business to larger corporations, acquire smaller companies, or acquire specific divisions or assets from other companies.

In short: Investment banks serve as intermediaries between a target company and prospective buyers. The goal of investment banking is to advise clients on how to meet their financial challenges.  

The role of investment banking in M&A

M&A investment banking concentrates on the M&A process

Investment bankers provide advisory services for company owners during mergers and acquisitions. The main purpose of an M&A investment banker is to ensure that the deal is closed at the fairest and most profitable price for both interested parties — the buyer and seller. 

Note: M&A investment banking fees differ depending on a particular investment bank but are usually based on the deal size and type.

The investment bank’s role in the M&A process includes the following tasks:

  • Industry valuation. An investment banker has the expertise for quality industry research, which is essential for company owners who want to close the deal at the best purchase price and profit from it. Investment bankers know the current trends of a particular industry and can provide valuable advice on what industry groups and business directions are in the most demand. 
  • Deal estimate. An investment bank analyzes different scenarios of possible outcomes of the deal and evaluates the possible profit that various potential buyers and potential targets can bring. Based on the analysis results, investment bankers can outline an approximate transaction value and develop a deal structure for the client companies. 
  • Company assessment. The management team and shareholders of the selling company usually can’t evaluate the company’s worth correctly. That’s why investment banks are actively involved in this process — they develop their own operating model and fairly assess the business. Additionally, they provide information on any possible price deviations.
  • Negotiations. Investment bankers serve as intermediaries between the buying company and the selling company. They are responsible for taking part in negotiations and know how to conduct them so that both parties are satisfied with the deal outcomes.
  • Due diligence. When one company decides to acquire another company or its specific divisions, the target company should then prepare all of its financial, historical, and corporate documentation for due diligence. The key points of the due diligence process include reviewing financial statements, legal contracts, and marketing materials and analyzing historical and projected financial results. An investment bank engages its own legal team to facilitate this process.
  • Deal closing. The deal closure is more than signing a final contract. It’s essential to make sure all the deal requirements are met, and nothing is missed. Negotiations of the deal’s final terms are often the responsibility of investment banks. They help clients to assess all the final terms and conditions of the deal so that both parties stay in a win-win situation and minimize risk.
  • Post-merger integration. The further development of the newly acquired company is often underestimated. Many investment banks keep working with their clients even after the deal closure. Their main goal is to advise on how to integrate the acquired company into the existing one in the most profitable way. 

Investment banking M&A process

An investment banking M&A process depends on what side of the deal an investment bank is involved in. However, the main responsibilities include the following:

  • Develop a sell or acquisition strategy
  • Connect to the buyer or seller
  • Perform evaluation
  • Initiate negotiations
  • Conduct due diligence
  • Negotiate the final terms that lead to deal closure

Now, let’s review in more detail what each responsibility entails.

1. Develop a sell or acquisition strategy

This process includes the M&A trends analysis of the industries and analysis of relevant acquirers or targets based on certain M&A criteria. This stage doesn’t always have a specific company involved because the research is often done on spec. Investment banks may initiate this analysis process — and then reach out to potential clients with a pre-made offer.

2. Connect to the buyer or seller

The next step is to connect with the C-suite executives of potential clients and present and explain their intent. Investment banks have expertise in identifying not only the benefits of the prospective deal but also potential pitfalls. That’s why the managing director or stakeholders of large companies will definitely see the need to involve skilled investment bankers in the transaction.   

3. Perform evaluation

When the buyer and the seller connect, and both are interested in the transaction, investment bankers move onto the evaluation stage. Their main goal is to calculate the deal price after assessing the company’s value by analyzing its debt and specific assets.  

4. Initiate negotiations

When the approximate deal price is calculated, an investment bank starts negotiations. The purpose of such negotiations is to develop and deliver an appropriate offer and to agree on a deal price and conditions.

5. Conduct due diligence

The main responsibilities of investment bankers include advising on the due diligence process. An investment bank reviews the financials and other important documentation of the target company and ensures that nothing is missed. Often, an investment banker serves as a main source of communication between the interested parties.

6. Negotiate the final terms and lead to the deal closure

Company owners usually lack the expertise to negotiate the final terms of the deal and close it with the most profit for both sides. That’s where investment bankers’ insights and expertise are most apparent. In the final stage of the deal, investment banks make sure all the deal requirements are fulfilled, conditions are met, and both parties are satisfied with the outcomes.  

Sell-side and buy-side in investment banking

The role of investment bankers during mergers and acquisitions largely depends on the side of the deal they work with. 

Sell-side investment bankers work with clients that search for possibilities to sell their business or assets — sellers. On the other hand, buy-side investment bankers work with companies that want to acquire another company — buyers. 

Below are the main responsibilities of the sell- and buy-side investment bankers in M&A deals:

Sell-side M&ABuy-side M&A
PreparationCreating a selling company’s pitch deckDefining the acquirer’s expectations and investment needs
ConsultationsAdvising on ways to improve the current state of the company for better investment opportunitiesConsulting on current M&A investment trends and relevant deal costs
EvaluationAssessing the target company’s valueAssessing the target company’s value
AdvertisingSearching for interested buyersSearching for prospective target companies to acquire
NegotiatingServing as a bridge between buyer and sellerServing as a bridge between buyer and seller
Conducting due diligenceMaking sure the buyer can review all the documents they are interested inMaking sure the seller has all the documents the buyer is interested in
Facilitating the dealFoster the deal closure at the most profitable conditions for the sellerFoster the deal closure at the most profitable conditions for the buyer
The main responsibilities of the sell- and buy-side investment bankers in M&A deals

Now let’s review the M&A investment banking steps of each side in more detail.

Sell-side investment banking 

The sell-side investment banker’s responsibilities include:

  • Creating a company’s pitch deck, its financial projections, and other marketing materials to advertise a firm to various potential investors
  • Valuation of the target company based on the current market trends and the firm’s performance
  • Providing recommendations on how to possibly improve or optimize the current marketing approach to get better financing offers
  • Sharing expertise and advising on the most appropriate ways to prepare for the company sale (for example, through private equity)
  • Searching for interested potential buyers, establishing contact with them, and being ready to negotiate all the details
  • Assisting in conducting due diligence and facilitating it
  • Developing a clear deal structure and negotiating fees 
  • Facilitating the deal closure and providing post-integration assistance

Buy-side investment banking

The range of responsibilities of an investment banker who works with an acquiring company includes:

  • Defining the acquiring company’s expectation from the prospective deal and establishing types of target companies a buyer would be interested in
  • Discussing the expected fees an acquirer should expect to pay and providing evidence supported by current market insights
  • Searching for potential target companies and forming a list of the most relevant
  • Contacting target companies on behalf of the buying company with an acquisition offer
  • Evaluating the potential target firms and making sure they are valued fairly
  • Conducting the due diligence process and ensuring the seller has all the needed financials in place
  • Negotiating with the seller on specific conditions when needed
  • Facilitating the deal closure at the fairest price 

Software for the investment banking M&A

To simplify their work, most investment bankers use various software products. The main tools that make the M&A investment banking process easier and smoother include the following:

  • Collaboration tools. Investment bankers are the main way of contact between buyers and sellers. It’s the quality and timeliness of that contact that are important and can greatly influence the deal outcomes. Such collaboration services as Slack often help investment bankers keep in touch with all interested parties.
  • Project management tools. The transaction structure, planning, and management are easier when using dedicated project management tools. With their help, investment bankers always know the current status of the deal and responsible employees.
  • Virtual data rooms. A virtual data room (VDR) best fits investment bankers’ needs when it comes to the due diligence stage. With the help of VDRs, investment bankers can share all the financials and other sensitive information securely. Moreover, most of the modern VDR providers offer in-built collaboration services, which significantly facilitates due diligence. Read more about VDRs for investment banking.


M&A investment banking focuses on assisting clients in conducting complex M&A deals. The main purpose of an investment banker is to ensure the deal closes at the fairest and most profitable price for both parties — the seller and the buyer.

The role of an investment bank in the M&A transaction depends on the side of the deal they work with. In general, investment bankers provide clients with information on current market trends, consult on how to get the most out of the deal, evaluate the potential deal, negotiate with the other side, conduct due diligence, and facilitate the deal closure.  

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